Midstream CapitalTraded Goods， New Infrastructure Outperformed

AnalystWANGYISACNo.S05705z0050001wangy012893ghtsc.comSFC No. BMO373+(86) 21 2897 2228 Huatai Research 13 August 2024 | China (Mainland) Monthly Midstream capital/traded goods,new infrastructure outperformed According to our model, in July 2024, the business climate of all sectors and allnon-financial soctors in the A-share market picked up slightly, while some still sawincreased sales volurme but decreased selling prices, with demand yet to improvs,consistent with China's July PMl data. Specifically, rationale for supply outweighedthat for demand, and extermal demand outstripped domestic demand in drivingeconomic growth, with the latter seeing increased divergence. We also notestructural highlights in new infrastructure. In tems of allocation: 1) Although small-and medium-cap stocks could generate excess returns in the short term,sustainability may be limited under pressure on both supply and demand sides.We still recommend A50 assets with robust ROE, stable dividends, and lowwatch sectors with better-than-market-expected eamings and some sustainability.valuations for medium-term base positions; 2) Entering the interim results season,recommend A+H pharmaceuticals highly sensitive to interest rates and whosevaluations have yet to be fully factored in expectations for rate cuts. More export-chain products saw marginally moderating growth As mentioned in our report Export & Consumption Sectors Seeing Signs ofModlerating Growth published on 15 July 2024, China's export chain divergedintemally, with more products (eg, components/panels/textiles & apparel/fumiture/white goods/commercial vehicles) seeing marginally moderated growth. Resilientproducts include: 1) inverters in June, the yoy fall in inverter export valuecontinued to narrow, with the absolute value at a 12-month high, primarily drivenby demand in Europe, Asia, Africa, and Latin America markets; 2) shipbuildingto micro-perspective; and the average value of three major freight rate indexes(leading indicators) has risen yoy: 3) general equipment in June, domesticmetal-processing machine tool output rose yoy, as did Japan's machine tool exportvalue (a leading indicator): 4) consumer electronics the DXI has picked up yoyfor 12 straight months, vith a rebound in mobile phone and PC demand. Agriculture/grid equip/rail transit equip/comms,equip climate improvedyet profit of purchased piglet breeding deteriorated. In June, the yoy decline inbreeding sow stocks narrowed slightly. Cash flow pressure plays a central role inyoy in June further accelerated. 3) Rail transit equipment: in June, fixed asseta high level. Given the first peak in the last round of high-speed rail commissioningoccued in around 2014, we believe demand should be well supported by therenewal cycie and large-scale equipment transformation policy. 4) CommunicationsChenbro (a server enclosure leader) saw rallying revenue yoy, indicating a ramp-up in the business climate of data centers. Yoy growth in upstream optoelectronicdevices output bounced back in June. Consumption: climate of chemical drugs/dairy products rallied seling prices. 1) Chemical drugs: industrial output yoy of pharmaceuticalsMost consumer goods continued to see increased sales volume yet reducedrebounded, and the gap between retail price yoy of mik and average price yoy ofJuly, the yoy decline in wholesale price of Feitian Moutai narrowed, and yoy growthin the wholesale price of Fenjiu Qinghua 20 turned negative. Yoy growth insales slowed, while that in retail sales of cosmetics tumed negative; 6)Daily necessities and cosmetics: in June, yoy growth in daily necessities retailE-commerce logistics: in June, yoy growth in ecommerce retail sales and expressdelivery volume of enterprises above a designated size fell yoy, and the yoydecline in cross-border e-commerce exports flatened 1) Cerment: yoy growth in cement prices ralied. 2) Aviation equipment: in June, thenarroved. 3) Photovoltaics (PV): in June, incremental PV installations yoy ralied,yoy decline in military-grade titanium sponge prices and carbon fiber imporlsJune, PV bids yoy, leading the incremental PV installations yoy by around onequarler, had narrowed decline, 4) Batteries: in June, yoy growth in new-energypassenger vehicle sales volume and power baltery inslallations contracled.Looking ahead, electrolytic cobalt prices yoy (fell in July. yet with the secondinfleclion point Iikely emerging at the boltom or the W-shaped curve) leads NEVsales volume yoy by around six months at the inlection point, Besides, yoy growhpoint for capacity utilization in 2H24, in our view, Risks: softer overseas demand than we expect; supply-side exit falling short of ourexpectations; failure of our models. Disclaimers Analyst Certification IWe, WANG Yi, hereby certify that the views expressed in this report accurately reflect the personal views of the analyst(s) aboutthe subject securities or issuers; and no part of the compensation of the analyst(s) was, is, or wll be, dire